Eurozone lending growth slows further as rate hikes bite

GROWTH in lending to eurozone companies slowed again in July, adding to already mounting evidence that sharply higher interest rates are putting a brake on credit creation and economic growth.

Lending to firms in the 20-nation currency bloc expanded by 2.2 per cent year-on-year after a 3.0 per cent reading a month earlier, while household credit growth slowed to 1.3 per cent from 1.7 per cent in June, according to an ECB report.

The European Central Bank raised interest rates for the ninth time in a row in July, increasing the rate that the ECB pays on banks’ deposits from 3.50 per cent to 3.75 per cent, its highest level since 2000, before euro banknotes and coins had been put into circulation.

At 5.3 per cent in July, inflation remains far above the bank’s target and could take until 2025 to fall back to the 2 per cent target. Preliminary inflation data for August will be published on Thursday, with analysts polled by Reuters forecasting a decline in inflation to 5.1 per cent.

Economic data from PMI surveys in August showed the downturn in eurozone business activity deepened far more than thought this month in a broad-based fall across the region.

Economic growth indicators are now pointing to a contraction in the third quarter, despite what could be a record-breaking tourism season. The weak data is intensifying debate over just how much more the ECB needs to do.

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Eurozone services slide deepens economic gloom, PMI shows

The M3 measure of money supply, seen in the past as a good indicator of future economic expansion, shrank 0.4 per cent in July in a turnaround from growth of 0.6 per cent in June, below expectations for a reading of 0.0 per cent. REUTERS